Trent Department Store uses a perpetual inventory system but adjusts its inventory records at year-end to reflect the results of a complete physical inventory. In the physical inventory taken at the ends of 2010 and 2011, Trent's employees failed to count the merchandise in the store's window display. The cost of this merchandise amounted to $13,000 at the end of 2010, and $19,000 at the end of 2011. As a result of these errors, the cost of goods sold for 2005 will be:
A) Understated by $19,000.
B) Overstated by $6,000.
C) Understated by $6,000.
D) None of the above.

Question

Quizplus · Accepted Answer

The error in 2010 caused the ending inventory to be understated by $13,000, which means the cost of goods sold was overstated by $13,000. In 2011, the beginning inventory was understated by $13,000, and the ending inventory was understated by $19,000, leading to a net overstatement of cost of goods sold by $6,000 for 2011.

Trent Department Store Uses a Perpetual Inventory System but Adjusts